|
zotan - the problem with your assertions is that the size of the debt is so monstrous relative to past periods - including 1937, the year many point to as FDR's "mistake" year because he relented in his considerable spending - that historical models in my view are dangerous and misleading.
Krugman of course is arguing for more stimulus - but he doesn't tell you what underpins his thoughts. If you scratch the surface he believes we can finance the massive debt that we are now incurring because he thinks the Chinese will use their excess savings to continue to invest in the United States. Underpinning that belief in turn is the view that the Chinese will do so because it is in their interest (they continue to need a captive market for their exports) and because they don't have other places to go with that amount of money. Ironically, many trained macro-economists (of which Krugman is not one) think that the debt will be so constraining that the bond market will step in and cause Obama (if he can stay in office) politicians to settle the debt come heck or high water, thus eclipsing stimulus activity.
This all makes me nervous. We have just experienced a bursting of a bubble where many economists and investors failed to account for extreme events that we though would never happen. Banking on China to effectively run a multi-trillion dollar economy doesn't make sense to me. At some point soon we must settle the debt - hopefully sooner than later - and that will involve spending discipline.
|